Early cost knowledge can help an industry attaining cost leadership or differentiating their products from the competition. In today''s competitive market, when a company buys parts from outside supplier, it is essential for it to verify the price at which supplier is supplying these parts is appropriate or not. In thesis, Cost Tool Development Using Statistical Methods, a tool is developed to estimate cost of electric parts. Parameters are identified which influence cost of parts and cost models for different types of parts are formulated. So, cost drivers are known. Using this model, the user can estimate cost of part and can compare the estimated cost with vendor quote. If vendor quote costs are on higher side, detailed investigation of vendor quotes will be done and this leads to cost saving. Also, outliers from existing data can be identified and their detailed cost structure can be found out. This method can be extended to other commodities also. Thus, it is a potential tool for cost reduction.